Indian economy to grow at 7.2% in 2016-17: BMI Research

Indian economy continues to face multiple challenges, and this is being reflected in high frequency data such as industrial production and trade, it added.

The Indian economy is expected to grow at 7.2 percent in 2016-17, a tad lower than Central Statistics Office's advance estimates of 7.6 percent in the current fiscal due to weak investments and external headwinds, says BMI Research.

"We forecast India's real GDP growth to come in at 7.2 percent for FY17 from our estimate of 7.3 percent in FY16 and 7.2 percent in FY15," the research firm said in a statement.

Indian economy continues to face multiple challenges, and this is being reflected in high frequency data such as industrial production and trade, it added.

"Weak private investment and external headwinds will be hurdles to higher growth, and we forecast real GDP growth to come in at 7.2 percent in FY2016/17 (versus 7.3 percent in FY2015/16), the statement said.

Central Statistics Office had projected 7.6 percent GDP growth rate in its advance estimates for the current fiscal released earlier in February this year.

Contrary to the BMI Research view, last month the Economic Survey tabled in Parliament had termed external environment as challenging.

However, the Survey had projected a 7-7.5 percent GDP growth rate in the next fiscal which could accelerate to eight percent in a couple of years.

But it had cautioned that if the world economy remains weak, India's growth would face considerable headwinds.

According to Japanese financial services major Nomura, India's GDP growth is likely to pick up to 7.8 percent in fiscal 2016-17 from 7.6 percent this year, largely driven by higher discretionary demand.

BMI Research said, "Modi administration remains committed in enacting incremental economic reforms, which we believe will be positive for economic growth over the coming years.

"The Indian government aims to reduce subsidies through the JAM (Jan Dhan-Aadhaar-Mobile) initiative, and we believe that the government's small steps in improving the transfer of subsidies by plugging leakages will help reduce expenditures and aid long-term fiscal deficit consolidation plans," it added.

"The disinflationary environment, coupled with the government's fiscal prudence, opens space for the Reserve Bank of India to reduce its repurchase (repo) rate as it attempts to support the economy."

"Indeed, we are forecasting the central bank to ease its benchmark policy rate by 50 basis points to 6.25 percent by the end of FY17, with at least 25 basis points worth of cuts either at its April meeting or at an unscheduled review," the research firm said.